30 essential terms and definitions for CPA BAR (Business Analysis & Reporting). Each definition is written for exam preparation, covering the concepts as they are tested on the 2026 syllabus.
Activity-based costing assigns overhead to products via cost drivers tied to specific activities, producing more accurate product cost than a plant-wide or department-wide overhead rate. It is most valuable in environments with diverse product lines and significant non-volume-related overhead.
ASC 280 requires public entities to disclose operating segments using the management approach: report segments the chief operating decision maker reviews to make resource-allocation decisions. Quantitative thresholds determine which segments must be separately reported.
ASC 326 introduces the current expected credit loss (CECL) model, which requires entities to recognize lifetime expected credit losses on financial assets at amortized cost. It replaces the prior incurred-loss model and accelerates loss recognition.
ASC 805 requires acquisitions to be accounted for using the acquisition method. The acquirer recognizes identifiable assets and liabilities at fair value, with any excess of consideration transferred recorded as goodwill.
The balanced scorecard is a performance-measurement framework that supplements financial measures with three additional perspectives: customer, internal processes, and learning and growth. It links operational metrics to strategic objectives.
The break-even point is the sales volume at which total revenue equals total costs. In units, it equals fixed costs divided by unit contribution margin; in dollars, fixed costs divided by contribution margin ratio.QBE=Unit CMFixed Costs
Capital budgeting evaluates long-term investment opportunities. Standard tools include net present value, internal rate of return, payback period, discounted payback, and profitability index, each with strengths under different decision contexts.
Contribution margin is revenue minus variable costs. It is the amount each unit (or each dollar of sales) contributes to covering fixed costs and, after break-even, to profit.
CVP analysis models the relationships between sales volume, costs, and profit. It produces break-even quantities, target-profit volumes, margins of safety, and operating-leverage measures, and supports sensitivity analysis on price, variable cost, and fixed cost.
Diluted EPS reflects the per-share earnings that would result if all dilutive convertible securities, options, warrants, and similar instruments were converted or exercised. It is reported alongside basic EPS by entities with potentially dilutive securities.Diluted EPS=Weighted Avg Diluted SharesNet Income−Preferred Dividends
A discontinued operation is a component of an entity that has been disposed of or is held for sale and that represents a strategic shift with a major effect on operations. Results are reported net of tax, separately from continuing operations.
A decomposition of return on equity into net profit margin, total asset turnover, and financial leverage (the equity multiplier), isolating the drivers of profitability, efficiency, and leverage.ROE=Net Profit Margin×Asset Turnover×Equity Multiplier
A performance measure of the residual wealth created after subtracting a charge for the cost of all invested capital from net operating profit after taxes. Positive EVA indicates the business earned more than its cost of capital.EVA=NOPAT−(WACC×Invested Capital)
Foreign currency translation converts a foreign subsidiary's financial statements into the reporting currency. Under the current-rate method, assets and liabilities translate at the current rate and revenue and expense at the average rate; the temporal method applies when the functional currency is the reporting currency.
A write-down recognized when a reporting unit's carrying amount, including goodwill, exceeds its fair value. Under the simplified one-step test, the impairment loss equals that excess, limited to the total goodwill assigned to the unit.Impairment Loss=Carrying Amount−Fair Value
GASB sets accounting and financial reporting standards for US state and local governments. Governmental funds report on the modified accrual basis; proprietary funds use full accrual.
The discount rate at which a project's net present value equals zero. A project is generally accepted when its IRR exceeds the required hurdle rate or cost of capital.
Under ASC 842, lessees classify leases as finance or operating using five criteria (transfer of ownership, purchase option, lease term vs. economic life, present value vs. fair value, and specialized-use). Both types of leases produce a right-of-use asset and a lease liability on the balance sheet.
Modified accrual is the governmental-fund accounting basis used by US state and local governments. Revenues are recognized when measurable and available to fund current expenditures; expenditures are recognized when liabilities are incurred.
NPV is the present value of future cash flows minus the initial investment, discounted at the cost of capital. A positive NPV indicates the project is expected to add value; NPV is the dominant decision rule in capital budgeting.NPV=−C0+∑t=1T(1+r)tCFt
NFP accounting follows ASC 958. It classifies net assets as with or without donor restrictions, reports expenses by both function and natural classification, and presents a statement of activities, statement of financial position, and cash flows.
ASC 715 governs accounting for defined-benefit pension plans. Net periodic pension cost includes service cost, interest cost, expected return on plan assets, and amortization of prior service cost and actuarial gains and losses; service cost is reported in operating income, with other components below.
The profitability index is the present value of cash inflows divided by the initial investment. It rescales NPV per dollar invested and is useful when ranking projects under a capital constraint.PI=∣C0∣PV of Inflows
The operating income a division or investment earns above a minimum required return on its invested assets. It rewards managers for accepting any project returning more than the required rate, addressing a weakness of return-based measures.RI=Operating Income−(Required Rate×Invested Assets)
ASC 606 prescribes a five-step model: identify the contract, identify performance obligations, determine the transaction price, allocate the transaction price to the obligations, and recognize revenue as each obligation is satisfied.
Sensitivity analysis varies one input at a time to see how the output (typically NPV) responds. It identifies the most influential drivers of an investment decision and complements scenario and Monte Carlo analyses.
Under ASC 810, an entity in which controlling financial interest is not established through voting rights, so the primary beneficiary that has power over its significant activities and absorbs its losses or benefits must consolidate it.
Variance analysis compares actual results to budget or standard, decomposing differences into price (rate) and quantity (efficiency) variances. It supports operational control and is foundational to standard-cost systems.
The blended required rate of return on a firm's capital, weighting the after-tax cost of debt and the cost of equity by their proportions of total financing. It is commonly used as the discount rate in capital budgeting.WACC=VERe+VDRd(1−T)
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